A Question of Economic Responsibility and the Struggle for Political Power

Ranil Wickremesinghe’s latest proposal to bring together “all parties except Pelawatte” under a common 20-year national policy framework deserves to be examined not merely as a proposal for political cooperation, but against the economic record of the period in which he exercised decisive influence over Sri Lanka’s economic policy.

The central question is therefore not simply what policy framework he is proposing today, but what economic legacy he is asking the people to trust him with again.

During the Yahapalana period, Sri Lanka increasingly relied on International Sovereign Bonds (ISBs) to finance government requirements. By the end of the decade, the country had accumulated a very large stock of commercially priced sovereign debt. The official record shows, for example, that the 2015 ISBs were issued at coupons of 6.125% and 6.850%, while the 2019 US$2 billion issue carried yields of 6.35% and 7.55%.

The problem was not simply the interest rate of any individual bond. It was the strategic dependence on expensive commercial borrowing by a country that did not possess a sufficiently strong foreign-exchange earning capacity to service such debt indefinitely.

The consequence became painfully clear after 2020. Sri Lanka eventually defaulted, and approximately US$12.5 billion of outstanding International Sovereign Bonds became part of the debt restructuring process. These bonds were subsequently negotiated with private creditors for restructuring, including a 28% reduction in face value and an 11% reduction in past interest.

This raises a fundamental question: where did the borrowed money go, and how much of the borrowing created productive foreign-exchange-generating capacity capable of repaying it?

A substantial portion of the borrowing was used to finance fiscal deficits and existing obligations rather than creating a sufficiently large new productive base. It is reasonable, therefore, to argue that Sri Lanka effectively borrowed against its future income without undertaking a commensurate transformation of its productive capacity. However, claims that a specific US$6 billion of the US$12.5 billion was spent on “consumption” should be presented as an estimate unless supported by a detailed expenditure audit, because government borrowing is fungible and cannot automatically be traced dollar-for-dollar to particular expenditure categories.

The deeper failure was therefore not borrowing itself, but borrowing commercially at high cost without creating adequate productive capacity and export earnings to service that borrowing.

The IMF programme must also be examined in this context

When Wickremesinghe became President during the 2022 crisis, Sri Lanka was already in an exceptionally weak negotiating position. The country had lost access to international capital markets, defaulted on its external debt and urgently needed external financing.

The IMF programme negotiated in 2023 provided US$2.9 billion through a 48-month Extended Fund Facility. But it also required a substantial programme of fiscal consolidation, revenue mobilisation and cost-recovery pricing. The programme included higher personal and corporate taxation, increases in VAT, fuel taxation, removal of tax exemptions, cost-recovery electricity and fuel pricing, and a target of achieving a primary fiscal surplus of 2.3% of GDP by 2025.

There is a legitimate economic debate over whether such a programme, while necessary for restoring debt sustainability, placed too much of the adjustment burden on households and businesses at a time when economic activity and real incomes had already been severely damaged.

Indeed, the IMF itself acknowledged that Sri Lanka faced severe economic and social hardships, while its subsequent reviews noted that fiscal consolidation and constrained bank credit would weigh on economic activity.

This is where Wickremesinghe’s present political message becomes difficult to separate from his economic record. He now speaks about investment, employment, living standards and a 20-year national economic programme. But a credible national development strategy cannot be based principally on fiscal contraction, taxation and debt repayment. Sri Lanka also needs a strategy for dramatically expanding productive capacity, exports, technology, industrial employment and foreign-exchange earnings.

The political dimension

Wickremesinghe now proposes discussions with virtually every political party while specifically excluding the political grouping based in Pelawatte—the NPP.

There is nothing inherently wrong with seeking a broad national consensus. In fact, long-term economic policy should ideally transcend changes of government. But the political question is whether this initiative represents a genuine attempt to establish a national economic consensus, or whether it is also part of an effort by the traditional political establishment to reconstruct a political coalition after losing power.

That question cannot be answered simply by attributing motives to Wickremesinghe. However, the timing is politically significant. The traditional political order has undergone a major transformation, and forces that dominated Sri Lankan politics for decades have lost substantial electoral influence. Against that background, an initiative to unite “all parties except” the governing NPP can reasonably be interpreted as an attempt to build an alternative political coalition.

The important issue for the public is therefore not who can assemble the largest political alliance, but what economic model that alliance intends to represent.

Sri Lanka should not return to a political model in which governments repeatedly borrow externally to finance fiscal deficits, postpone structural problems and then leave future generations to deal with the consequences.

Nor should the country simply replace one form of economic orthodoxy with another. The lesson of the crisis should be that macroeconomic stability and debt sustainability must be combined with productive investment, industrial development, export expansion, technological upgrading and rising real incomes.

A question Wickremesinghe should answer

If Wickremesinghe is proposing another long-term national programme, he should first explain to the country:

Why did Sri Lanka become so dependent on expensive ISB borrowing during the period when he exercised major influence over economic policy?

What proportion of that borrowing contributed to productive investment and new foreign-exchange earning capacity?

Why should the people accept another long-term economic programme from the political establishment without a clear assessment of the policies that contributed to the accumulation of the debt burden?

And, most importantly:

What fundamentally different economic strategy does he now propose to ensure that Sri Lanka does not once again borrow heavily to finance consumption, deficits and debt repayment without building the productive capacity required to repay those obligations?

Sri Lanka needs a national economic programme, but such a programme must be judged by its capacity to create wealth rather than merely redistribute scarcity, generate foreign exchange rather than repeatedly borrow it, and raise productive capacity rather than simply impose fiscal discipline on an already weakened population.

The debate, therefore, should not be reduced to Ranil versus NPP, UNP versus JVP, or one political coalition versus another. The real issue is whether Sri Lanka is prepared to move beyond the economic model that produced the debt crisis in the first place.

If Wickremesinghe wants to lead that debate, he should begin by accounting for the economic decisions of the past before asking the country to place its economic future in his hands again.